Weakness Is Not Strength. European QE Will Impoverish the People

Peter: I think they’re trying it, because they want to try to bail out European governments that have too much debt. What they’re doing is monetizing government debt. They’re printing euros and buying government bonds. What that really does is prevent European governments from actually cutting spending, which is one of the big problems in Europe. The problems there are too much government spending, too much debt, and too much unemployment. Quantitative easing not only doesn’t solve these problems, but actually prevents gets.

Question: Things were kind of improving in Europe, generally. Maybe not so much for Greece, not so much for Southern Europe. But generally, the rest of Europe was over the worst of it. Not true?

Peter: I think things are going to get worse because of this quantitative easing. What they are going to succeed in doing is lifting consumer prices throughout Europe. So Europeans who are struggling are going to have to struggle even harder, because the cost of living is going to go up. So compounding the unemployment problem with an inflation problem is not a solution that’s going to work.

Question: What about the currency wars that the chairman of Goldman Sachs is warning of today in Davos, where countries devalue their money… I kind of get it, but when everyone does it, then it doesn’t work.

Peter: It doesn’t work at all. A currency war is where a government tries to destroy its own people. You don’t make your country richer by making your citizens poorer. That’s all that happens when you devalue your money. It means that the prices of the things that you want to buy –

Question: Yes, but it’s about imports and exports, isn’t it?

Peter: Well, it just means that you export for less. It’s like putting your stuff on sale. Sure, if you reduce the price of your exports, you’re going to sell more. But why would you want to discount your exports? You want to get as much as you can for your exports, so you can import more. But what happens when your currency goes down, your standard of living goes down, because you’re poorer. You have to work harder to consume the things that you want and need.

Question: Back in 2013, the G7 leaders said they wouldn’t interfere with currency rates. They said the market should determine it. That seems to have gone out the bucket?

Peter: Yeah. And you know, the only way to win a currency war is not to fight. The winners don’t participate. The best thing for your country and your economy is a strong currency. A strong currency reduces the cost of living. It increases the standard of living, and people benefit through strength. Weakness is not strength.

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Latest news, comments and media appearances of Peter David Schiff - the CEO and Chief Global Strategist of Euro Pacific Capital and CEO of Euro Pacific Precious Metals, LLC, a silver and gold dealer. His insights about the US and global economy, fiscal cliff, US dollar, precious metals and the Fed.